Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this annual report. This discussion and analysis contains forward-looking statements based upon our current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this annual report.
Overview
We are a clinical-stage biopharmaceutical company focused on discovering, acquiring, developing and commercializing therapeutics in the disease areas of immunology, inflammation and oncology. Our goal is to be an industry leader in each of these therapeutic areas and enhance and extend the lives of patients suffering from such diseases. We currently have three clinical-stage product candidates, in addition to one late-stage preclinical product candidate and five additional preclinical programs. We are developing seralutinib for the treatment of PAH and commenced enrolling patients for a Phase 2 TORREY clinical trial in PAH patients in December 2020. We expect topline results from this trial in the second half of 2022, subject to developments in the ongoing COVID-19 pandemic. We are developing GB004 for the treatment of inflammatory bowel disease, including UC and CD. We commenced enrolling patients for a Phase 2 SHIFT-UC clinical trial in UC in October 2020, and we completed enrollment in the fourth quarter of 2021. We expect topline results for the 12-week primary endpoint for this trial in the second quarter of 2022 and topline results for the week 36 treat-through endpoint from this trial in the fourth quarter of 2022. We are developing GB5121 for the treatment of PCNSL and commenced a Phase 1 study in healthy volunteers in the fourth quarter of 2021. We are developing GB7208 for the treatment of MS. GB7208 is currently undergoing preclinical testing, and pending the outcomes of our ongoing preclinical work, we expect to initiate a Phase 1 study in healthy volunteers in the second half of 2022.
We were incorporated in October 2015 and commenced operations in 2017. To date, we have focused primarily on organizing and staffing our company, business planning, raising capital, identifying, acquiring and in-licensing our product candidates and conducting preclinical studies and early clinical trials. We have funded our operations primarily through equity and debt financings. We raised $954.8 million from October 2017 through December 31, 2021 through Series A and B convertible preferred stock financings, a convertible note financing, our IPO completed in February 2019, proceeds from our Credit Facility, and proceeds from our concurrent underwritten public offerings of 5.00% convertible Notes due 2027 or the "2027 Notes" and proceeds from our common stock in May 2020. As of December 31, 2021, we had $325.2 million in cash, cash equivalents and marketable securities.
We have incurred significant operating losses since our inception and expect to continue to incur significant operating losses for the foreseeable future. For the years ended December 31, 2021 and 2020, our net loss was $234.0 million and $243.4 million, respectively. As of December 31, 2021, we had an accumulated deficit of $811.5 million. We expect our expenses and operating losses will increase substantially as we conduct our ongoing and planned clinical trials, continue our research and development activities and conduct preclinical studies, and seek regulatory approvals for our product candidates, as well as hire additional personnel, protect our intellectual property and incur additional costs associated with being a public company. In addition, as our product candidates progress through development and toward commercialization, we will need to make milestone payments to the licensors and other third parties from whom we have in-licensed or acquired our product candidates, including seralutinib and GB004. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending in particular on the timing of our clinical trials and preclinical studies and our expenditures on other research and development activities.
We do not expect to generate any revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years. If we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, until such time as we can generate substantial product revenues to support our cost structure, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements when needed could have a negative impact on our financial condition and on our
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ability to pursue our business plans and strategies. If we are unable to raise additional capital when needed, we could be forced to delay, limit, reduce or terminate our product candidate development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
COVID-19 Pandemic
The COVID-19 pandemic continues to rapidly evolve. The pandemic and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen. The extent to which the COVID-19 pandemic may impact our business, including our preclinical studies, clinical trials, and financial condition will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the continued geographic spread of variants, the duration of the pandemic, the timing and effectiveness of vaccine distribution, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. With a focus on employee safety and well-being during the COVID-19 pandemic, we have transitioned to a hybrid work model with our employees generally working both remotely and onsite. We anticipate we will continue to use this model going forward as we provide our employees with the flexibility and tools to support their well-being and effectiveness in an evolving public health environment. To date, we have been able to continue to supply our product candidates to our patients currently enrolled in our clinical trials, including our Phase 2 clinical trials of seralutinib and GB004 and Phase 1 study of GB5121, and do not currently anticipate any interruptions in supply. In addition, while we are continuing the clinical trials we have underway in sites across the globe, COVID-19 precautions and related staffing shortages at sites and key vendors have delayed, such as the temporary closure of enrollment in 2020 at certain sites in our ongoing Phase 2 trial for seralutinib in PAH, and may continue to delay completion of our current and future trials and may directly or indirectly impact the timeline for data readouts, initiation of, as well as monitoring, data collection and analysis and other related activities for, some of our current and future clinical trials. For example, our current expectations for how we will continue to enroll our Phase 2 clinical trial of seralutinib are based on an assumption that clinical trial and healthcare activities remain somwhat normal, and clinical sites stay open in the first half of 2022 and that we do not experience another slowdown in enrollment such as what we experienced during the surge of the COVID-19 Delta variant in the summer of 2021. In particular, with respect to seralutinib, some PAH clinical trial sites may limit operations and enrollment as PAH patients may be at a higher risk of COVID-19 complications than the general population. Therefore, our assumptions around enrollment timing may prove to be incorrect, in particular if COVID-19 continues to spread and/or surge. In light of recent developments relating to the COVID-19 pandemic, and consistent with the FDA’s updated industry guidance for conducting clinical trials, clinical trials may be deprioritized in favor of treating patients who have contracted the virus or to prevent the spread of the virus. This may lead to clinical trial protocol deviations or to discontinuation of treatment for patients who are currently enrolled in our trials. Any delays in the completion of our clinical trials, data analysis or readouts and any disruption in our supply chain could have a material adverse effect on our business, results of operations and financial condition. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat it, as well as the economic impact on local, regional, national and international markets.
Components of Results of Operations
Operating expenses
Research and development
Research and development expenses relate primarily to preclinical and clinical development of our product candidates and discovery efforts. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
Research and development expenses include or could include:
• salaries, payroll taxes, employee benefits, and stock-based compensation charges for those individuals involved in research and development efforts;
• external research and development expenses incurred under agreements with contract research organizations, or CROs, investigative sites and consultants to conduct our clinical trials and preclinical and non-clinical studies;
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• laboratory supplies;
• costs related to manufacturing our product candidates for clinical trials and preclinical studies, including fees paid to third-party manufacturers;
• costs related to compliance with regulatory requirements; and
• facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent, maintenance of facilities, insurance, equipment and other supplies.
Our direct research and development expenses consist principally of external costs, such as fees paid to CROs, investigative sites and consultants in connection with our clinical trials, preclinical and non-clinical studies, and costs related to manufacturing clinical trial materials. We deploy our personnel and facility related resources across all of our research and development activities. We track external costs and personnel expense on a program-by-program basis and allocate common expenses, such as facility related resources, to each program based on the personnel resources allocated to such program. Stock-based compensation and personnel and common expenses not attributable to a specific program are considered unallocated research and development expenses.
We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of our product candidates and conduct discovery and research activities for our preclinical programs. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future preclinical studies and clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future preclinical studies and clinical trials, regulatory developments and our ongoing assessments as to each product candidate’s commercial potential. We will need to raise substantial additional capital in the future.
Our clinical development costs may vary significantly based on factors such as:
• the costs incurred as a result of the COVID-19 pandemic, including clinical trial delays;
• per patient trial costs;
• the number of trials required for approval;
• the number of sites included in the trials;
• the countries in which the trials are conducted;
• the length of time required to enroll eligible patients;
• the number of patients that participate in the trials;
• the number of doses that patients receive;
• the drop-out or discontinuation rates of patients;
• potential additional safety monitoring requested by regulatory agencies;
• the duration of patient participation in the trials and follow-up;
• the cost and timing of manufacturing our product candidates;
• the phase of development of our product candidates; and
• the efficacy and safety profile of our product candidates.
In process research and development
In process research and development, or IPR&D, expenses include IPR&D acquired as part of an asset acquisition or in-license for which there is no alternative future use, are expensed as incurred.
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IPR&D expenses consist of our upfront and milestone payments made to Pulmokine, Inc., in connection with the in-license of seralutinib, our upfront payments made to Aadi in connection with the in-license and subsequent amendment of the in-license of GB004, our upfront and milestone payments made to Adhaere Pharmaceuticals, Inc., or Adhaere, in connection with the acquisition of GB1275, and upfront and milestone payments made in connection with the acquisition of certain preclinical programs.
General and administrative
General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include facility-related costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services and insurance costs.
We expect our general and administrative expenses will increase for the foreseeable future to support our expanded infrastructure and increased costs of operating as a public company. These increases will likely include increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs associated with operating as a public company.
Other income (expense), net
Other income (expense), net consists of (1) interest income on our cash, cash equivalents and marketable securities, (2) sublease income, (3) interest expense related to our Credit Facility and our 2027 Notes, and (4) other miscellaneous income (expense).
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions (See Note 2 to our consolidated financial statements).
Accrued expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. We make estimates of our accrued expenses as of each balance sheet date based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development expenses include the costs incurred for services performed by our vendors in connection with research and development activities for which we have not yet been invoiced.
We base our expenses related to research and development activities on our estimates of the services received and efforts expended pursuant to quotes and contracts with vendors that conduct research and development on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the research and development expense. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid expense accordingly. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could
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result in us reporting amounts that are too high or too low in any particular period. To date, there have been no material differences between our estimates of such expenses and the amounts actually incurred.
Convertible Senior Notes
In accounting for the issuance of the 2027 Notes, we separated the 2027 Notes into liability and equity components at issuance. The carrying amount of the liability component was calculated by measuring the fair value of similar debt instruments that do not have associated convertible features. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2027 Notes. The equity component is not remeasured as long as it continues to meet the condition for equity classification. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) is amortized to interest expense over the term of the 2027 Notes.
We allocated the issuance costs incurred to the liability and equity components of the 2027 Notes based on their relative fair values. Issuance costs attributable to the liability component were recorded as a reduction to the liability portion of the 2027 Notes and are being amortized to interest expense over the term of the 2027 Notes. Issuance costs attributable to the equity component, representing the conversion option, were netted with the equity component in stockholders' equity.
Results of Operations for the Years Ended December 31, 2021 and 2020
The following table sets forth our selected statements of operations data for the years ended December 31, 2021 and 2020:
Years Ended December 31, 2021 vs 2020 Change
2021 2020
(in thousands)
Operating expenses:
Research and development $ 170,267 $ 160,854 $ 9,413
In process research and development 75 23,380 (23,305)
General and administrative 45,782 49,728 (3,946)
Total operating expenses 216,124 233,962 (17,838)
Loss from operations (216,124) (233,962) 17,838
Other income (expense)
Interest income 761 3,442 (2,681)
Interest expense (19,440) (12,666) (6,774)
Other income (expense) 799 (174) 973
Total other expense, net (17,880) (9,398) (8,482)
Net loss $ (234,004) $ (243,360) $ 9,356
Operating expenses
Research and development
Research and development expenses were $170.3 million for the year ended December 31, 2021, compared to $160.9 million for the year ended December 31, 2020, for an increase of $9.4 million, which was primarily attributable to an increase of $18.0 million of costs associated with preclinical studies and clinical trials for GB004, an increase of $11.9 million of costs associated with preclinical studies and clinical trials for GB002, an increase of $16.2 million of costs associated with preclinical studies and clinical trials for GB5121, and an increase of $6.2 million of costs associated with preclinical studies for other programs; offset by a decrease of $34.6 million of costs associated with preclinical studies and clinical trials for GB001 and a decrease of $8.3 million of costs associated with preclinical studies and clinical trials for GB1275.
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The following table shows our research and development expenses by program for the years ended December 31, 2021 and 2020:
Years Ended December 31,
2021
2020
(in thousands)
GB001 $ 1,964 $ 36,576
Seralutinib 46,490 34,564
GB004 42,338 24,382
GB1275 8,418 16,714
GB5121 27,365 11,118
Other Programs 43,692 37,500
Total research and development $ 170,267 $ 160,854
In process research and development
There were no significant IPR&D expenses for the year ended December 31, 2021. IPR&D expenses for the year ended December 31, 2020 were $23.4 million, which was primarily attributable to a $15.0 million upfront payment to Aadi in connection with the amendment to the in-license agreement of GB004 and a $5.0 million milestone payment to Pulmokine for the initiation of the Phase 2 clinical trial for seralutinib.
General and administrative
General and administrative expenses were $45.8 million for the year ended December 31, 2021, compared to $49.7 million for the year ended December 31, 2020, for a decrease of $3.9 million, which was primarily attributable to a $6.7 million decrease in stock-based compensation costs; offset by $2.4 million of accrued costs associated with a settlement of outstanding securities litigation and a $0.5 million increase in insurance costs.
Other expense, net
Other expense, net was $17.9 million for the year ended December 31, 2021, compared to other expense, net of $9.4 million for the year ended December 31, 2020, for an increase of $8.5 million, which was primarily attributable to a $6.8 million increase in interest expense, a $2.7 million decrease in interest income earned on our cash, cash equivalents and marketable securities during the period, offset by an increase of $1.3 million of sublease income.
Results of Operations for the Years Ended December 31, 2020 and 2019
The discussion of our financial condition and results of operations for the year ended December 31, 2019 and the comparison of 2020 and 2019 results included in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2020 is incorporated by reference into this MD&A.
Liquidity and Capital Resources
We have incurred substantial operating losses since our inception and expect to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of December 31, 2021 and 2020, we had an accumulated deficit of $811.5 million and $577.5 million, respectively.
Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
Under our license agreements with Pulmokine and Aadi, as well as our other license and acquisition agreements, we have payment obligations that are contingent upon future events such as our achievement of specified development, regulatory and commercial milestones and are required to make royalty payments in connection with the sale of products developed under those agreements. As of December 31, 2021, we were unable to estimate the timing or likelihood of achieving the milestones or making future product sales. Other contractual obligations include future payments under our Credit Facility, 2027 Notes and existing operating leases.
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From our inception through the year ended December 31, 2021, our operations have been financed primarily by gross proceeds of $942.0 million from the sale of our convertible preferred stock, convertible promissory note, proceeds from our IPO, proceeds from our Credit Facility, and proceeds from our concurrent underwritten public offerings of 2027 Notes and common stock. As of December 31, 2021, we had cash, cash equivalents and marketable securities of $325.2 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to capital preservation and liquidity.
On February 12, 2019, we closed our IPO and the underwriters in the IPO purchased 19,837,500 shares, including the full exercise of their option to purchase additional shares of common stock. The net proceeds from the IPO were $291.3 million, after deducting underwriting discounts and commissions and estimated offering costs. In connection with the closing of the IPO, the outstanding shares of our convertible preferred stock were converted into shares of common stock at a ratio of 4.5-to-one.
On May 2, 2019, we entered into a credit, guaranty and security agreement, as amended on September 18, 2019 and July 2, 2020, pursuant to which the lenders party thereto agreed to make term loans available to us for working capital and general business purposes, in a principal amount of up to $150.0 million in term loan commitments, including a $30.0 million term loan which was funded at the closing date, with the ability to access the remaining $120.0 million in two additional tranches (each $60.0 million), subject to specified availability periods, the achievement of certain clinical development milestones, minimum cash requirements and other customary conditions, or the Credit Facility. As of December 31, 2021, no other tranches under the Credit Facility were available to be drawn.
On April 10, 2020, we filed a registration statement on Form S-3, or the Shelf Registration Statement, covering the offering from time to time of common stock, preferred stock, debt securities, warrants and units, which registration statement became automatically effective on April 10, 2020.
On May 21, 2020, we issued $200.0 million aggregate principal amount 5.00% convertible senior notes due 2027 in a registered public offering. The interest rate on the 2027 Notes is fixed at 5.00% per annum. Interest is payable semi-annually in arrears on June 1 and December 1 of each year commencing on December 1, 2020. The total net proceeds from the 2027 Notes, after deducting the underwriting discounts and commissions and other offering costs, were approximately $193.6 million. Concurrent with the registered underwritten public offering of the 2027 Notes, we completed an underwritten public offering of 9,433,963 shares of our common stock. We received net proceeds of $117.1 million, after deducting underwriting discounts and commissions and other offering costs. Our concurrent offerings of 2027 Notes and common stock were registered pursuant to the Shelf Registration Statement.
Additional information about the our long-term borrowings is presented in Note 5 “Indebtedness” to the Notes to Consolidated Financial Statements included in Part II, Item 8, of this Form 10-K, herein by this reference.
The following table shows a summary of our cash flows for each of the years shown below:
Years Ended December 31,
2021 2020 2019
(in thousands)
Net cash used in operating activities $ (188,890) $ (176,360) $ (144,834)
Net cash provided by (used in) investing activities (117,427) 215,342 (147,144)
Net cash provided by financing activities 3,329 312,540 321,578
Effect of exchange rate changes on cash, cash equivalents and restricted cash (165) 9 70
Net (decrease) increase in cash, cash equivalents and restricted cash $ (303,153) $ 351,531 $ 29,670
Operating activities
During the year ended December 31, 2021, operating activities used approximately $188.9 million of cash, primarily resulting from a net loss of $234.0 million, partially reduced by stock-based compensation expense of $32.0 million, amortization of long-term debt discount and issuance costs of $6.7 million and accrued research and development expenses of $5.8 million.
During the year ended December 31, 2020, operating activities used approximately $176.4 million of cash, primarily resulting from a net loss of $243.4 million, partially reduced by stock-based compensation expense of $38.7 million, IPR&D expenses of $23.4 million and amortization of long-term debt discount and issuance costs of $3.9 million.
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During the year ended December 31, 2019, operating activities used approximately $144.8 million of cash, primarily resulting from a net loss of $180.3 million, partially reduced by stock-based compensation expense of $20.8 million, and changes in operating assets and liabilities of $12.3 million. Net cash provided by changes in operating assets and liabilities consisted primarily of increases in accounts payable, accrued research and development expenses, and accrued expenses of $13.9 million, and an increase in other assets of $2.7 million due to long-term deposits for clinical development activities and property leases, partially offset by an increase in prepaid expenses and other current assets due to prepayments for clinical development activities, investments receivable, and receivables for stock option exercises of $4.4 million.
Investing activities
During the year ended December 31, 2021, investing activities used approximately $117.4 million of cash, primarily resulting from the purchase of marketable securities of $152.0 million, partially offset by maturities of marketable securities of $36.2 million.
During the year ended December 31, 2020, investing activities provided approximately $215.3 million of cash, primarily resulting from the sales and maturities of marketable securities of $349.2 million, partially offset by the purchase of marketable securities of $109.0 million and upfront and milestone payments of $23.4 million made to third parties in connection with the in-license or acquisition of our clinical and preclinical programs.
During the year ended December 31, 2019, investing activities used approximately $147.1 million of cash, primarily resulting from the purchase of marketable securities of $499.1 million, partially offset by sales and maturities of investments of $358.5 million.
Financing activities
During the year ended December 31, 2021, financing activities provided $3.3 million of cash, resulting from the proceeds from the exercise of stock options of $2.0 million, and from the purchase of shares pursuant to the Employee Stock Purchase Plan of $1.3 million.
During the year ended December 31, 2020, financing activities provided $312.5 million of cash, primarily resulting from the concurrent registered underwritten public offerings of 2027 Notes and common stock for net proceeds of $193.6 million and $117.1 million, respectively.
During the year ended December 31, 2019, financing activities provided $321.6 million of cash, primarily resulting from the net proceeds from our IPO of $291.3 million, and proceeds from our Credit Facility of $30.0 million, offset by $1.8 million of debt issuance costs.
Funding requirements
Based on our current operating plan, we believe that our existing cash, cash equivalents and marketable securities, and access to our Credit Facility, will be sufficient to fund our operations into the second half of 2023. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress and expenses in these trials is uncertain.
Our future capital requirements will depend on many factors, including:
• the type, number, scope, progress, expansions, results, costs and timing of, our preclinical studies and clinical trials of our product candidates which we are pursuing or may choose to pursue in the future;
• the costs and timing of manufacturing for our product candidates;
• the costs, timing and outcome of regulatory review of our product candidates;
• the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;
• our efforts to enhance operational systems and hire additional personnel to satisfy our obligations as a public company, including enhanced internal controls over financial reporting;
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• the costs associated with hiring additional personnel and consultants as our preclinical and clinical activities increase;
• the timing and amount of the milestone or other payments we must make to the licensors and other third parties from whom we have in-licensed our acquired our product candidates;
• the costs and timing of establishing or securing sales and marketing capabilities if any product candidate is approved;
• our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for any approved products;
• the terms and timing of establishing and maintaining collaborations, licenses and other similar arrangements;
• costs associated with any products or technologies that we may in-license or acquire; and
• any delays and cost increases that result from the COVID-19 pandemic.
Until such time as we can generate substantial product revenues to support our cost structure, if ever, we expect to finance our cash needs through equity offerings, our Credit Facility, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements.
However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, licenses and other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. Our failure to raise capital or enter into such other arrangements when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise additional capital when needed, we could be forced to delay, limit, reduce or terminate our product candidate development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included elsewhere in this annual report.